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Cheaper hips path to lower premiums

February 11, 2016

Private health funds are under pressure to pass any savings from reform of prosthetic pricing on to consumers through more modest premium increases.

As part of her push to improve the value of private health cover, Health Minister Sussan Ley has appointed experienced health administrator Professor Lloyd Samson to lead a working group examining the way medical implants and devices are priced.

The Industry Working Group on Prostheses, which includes a representative from the AMA, will look at current arrangements under which the cost of around 9000 prostheses and implants used in the private health system is set, resulting in prices that are often double or more of those paid in the public sector.

Ms Ley said the pricing process meant the same pacemaker delivered through the private system cost $26,000 – twice as much as if it was provided through a public hospital.

“It doesn’t matter whether it’s the hospital or the insurer purchasing these devices, the cost will always ultimately fall to the consumer, and I want to take unnecessary pressure off premiums,” the Minister said.

Under the current system, the price of a prosthesis is set and can only be under-cut if a rival device has more than 25 per cent of the market.

The focus on prosthesis pricing has come amid insistent warnings form the AMA about the quality of insurance policies on offer.

AMA President Professor Brian Owler has raised the alarm on the proliferation of policies with multiple exclusions and high excesses that often leave patients stranded without cover virtually at the surgery theatre door.

Professor Owler said it was particularly concerning that patients were often unaware that their cover had been downgraded, while others were being lured into buying “junk” policies that only provide cover in public hospitals.

The prostheses working group has been asked to look at ways to make the purchase of devices more competitive and efficient, and to ensure that the benefits of this are passed on to consumers.

Private health funds have long complained about the prices they are required to pay for prostheses, and estimate that up to $800 million a year could be saved by bringing prices more in to line with those paid in the public system.

The industry’s peak group, Private Healthcare Australia, said insurers spent $1.9 billion on prostheses last financial year – 14 per cent of total payouts.

The group said private patients in Australia paid far more for medical devices than those in comparable countries such as France, Japan and Italy, and much more than it cost the public sector.

“This is an unfair cost burden on private patients which the Government can address immediately,” PHA Chief Executive Dr Rachel David said, arguing for a system of reference pricing benchmarked against local and international charges.

But the Medical Technology Association of Australia said the price of medical devices had not changed in five years, and the growing payout reflected increased use of prostheses rather than cost.

The Association argued axing the current arrangement would cause chaos and take the power to decide what device a patient had from doctors and hand it to the health funds.

The Government’s review has also come under fire from smaller device manufacturers concerned that it will increase the market dominance of the big firms by allowing them to bundle overpriced routine products with devices only they can supply.

Changes to the pricing arrangement may also be resisted by some private hospital groups, which earn significant revenue from the supply and use of prosthetics.

The prosthesis review is taking place amid a broader assessment of the private health insurance system initiated by Ms Ley because of mounting consumer dissatisfaction with the value of private cover.

Ms Ley has asked health funds to resubmit plans for premium increases this year, based on their full financial position, rather than simply a tally of claims and benefits paid.

“Consumers have made it clear they don’t believe they’re getting value for money,” the Minister said.

Ms Ley said that claims and benefits constituted only part of the picture, “when we know insurers are holding an additional $5.1 billion capital in their pockets. The question I am asking insurers is: do they have some capacity to use this excess capital to deliver premium relief for their customers this year?”

The Samson review has been directed to report to the Minister in August.